auto

6 steps to 'cash for clunkers'

A car made out of money in the forefront with another red car in the back on a country road with the sunset
Highlights
  • "Cash for clunkers" is in full swing, but not all consumers can take part.
  • Consumers can get a $3,500 or $4,500 credit on the purchase of a new car.
  • About 16,000 franchised new car dealers are registered for the CARS program.

Editor's Note: On Thursday, Aug. 20, the Department of Transportation, or DOT, announced that the "Cash for Clunkers" program will conclude Monday, Aug. 24 at 8 p.m. EDT. The DOT advised dealers to only conduct transactions under the program with consumers who have all of their paperwork ready to submit to the dealer during the transaction, as dealers will only have until Aug. 24 to submit completed applications for reimbursement.

The government's "cash for clunkers" program, officially called the Car Allowance Rebate System, or CARS for short, is in full swing, but only some consumers will be able to participate thanks to the eligibility requirements for potential buyers, their current vehicles and the vehicles they plan to buy or lease.

The program was designed to help consumers buy or lease a more environmentally friendly car, pickup or SUV when they trade in a less fuel-efficient one. Consumers can get a $3,500 or $4,500 credit toward the purchase of a new vehicle depending on the fuel economy improvement between the two vehicles, according to the government's Web site cars.gov. This credit is considered the buyer's trade-in value, and their clunker is sent off to be crushed. Here's the lowdown on the process.

Step 1: Determine if you qualify.
The person trading in the clunker must have been the vehicle's owner on the registration and the title for at least one year prior to the date of purchase, according to the program's requirements. The title must be "clear," so if there is a lien holder, you must first clear the lien before participating in the program. Consumers can only participate in the program once.

For a vehicle that has two names on one title, such as a married couple, only one person can take advantage of the program. If there are two cars with two names on each title, each person can receive a credit for each clunkers.  

Step 2: Determine if your vehicle qualifies.
Vehicles that are traded must be no more than 25 years old, must be in drivable condition and must have been insured by the owner for at least one year prior to the date of purchase, except in New Hampshire and Wisconsin which do not require auto insurance. The clunker must get no more than 18 miles per gallon as a combined average fuel economy under the EPA's new estimated mile-per-gallon calculations. There are different requirements for a cargo van or very large pickup, referred to as a work truck in the program. To find the combined mile-per-gallon rating for your car, pickup or SUV, go to the EPA's FuelEconomy.gov site and select the model year, make, model and engine of your vehicle, and make sure the red number above the word "combined" is 18 or less.

Step 3: Determine if the new vehicle you want to purchase or lease qualifies.
The CARS program only applies to new, not used, vehicles that are being purchased or leased for a five-year term or longer, and have a manufacturer's suggested retail price of $45,000 or less, the program's requirements state.

If the new vehicle is a passenger car, it must get at least 22 miles per gallon in combined average fuel economy, while Category 1 trucks -- light-duty pickups, some SUVs and minivans -- must have a combined fuel economy rating of at least 18 miles per gallon. Category 2 trucks -- large light-duty pickups and some vans -- must get at least 15 miles per gallon combined, according to EPA estimates. The combined fuel economy ratings for all new vehicles ares listed on the vehicle's window sticker or can be calculated at FuelEconomy.gov. Be sure you know the make, model, engine and transmission of the new vehicle to obtain the correct mile-per-gallon number.

Note that if you checked your vehicle's fuel economy number before the program went into effect on July 27, you should check again. In preparation for the program's launch, the EPA updated the fuel economy data on FuelEconomy.gov to reflect the precise number to four decimal places, as required by the legislation, causing a small number of vehicles to be affected.

"Of the 30,000 vehicle model types spanning 25 years, the result of converting to the more precise data needed for the CARS program meant that an additional 86 model types gained eligibility while 78 no longer qualify," says Cathy Milbourn, EPA spokesperson.

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Step 4: Decide if it makes financial sense to participate in the program.
Consumers will receive $3,500 toward the purchase or lease of a new vehicle if it gets at least four, but less than 10, miles per gallon more than the old vehicle. They will get $4,500 if the new vehicle gets a least 10 miles per gallon higher than the old vehicle. The manufacturers have excellent calculators on their Web sites to determine how much credit you can receive for your car. Once you know how much credit you'll receive, calculate the value of your clunker using one of the many popular auto information Web sites such as Edmunds.com, Kelley Blue Book or NADAguides.com.

However, if your vehicle is worth more than the amount of the credit, you may want to try to sell it in a private-party sale. "if it's in the range of the credit, you might be better off just using the CARS program," says Karl Brauer, editor-in-chief at Edmunds.com. "For many people, the time and energy involved in selling your car privately isn't worth the extra $500 they could make."

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